BIMETALLISM. A monetary system wherein gold and silver are both used as stand ard money and coined without limit at a fixed ratio imposed by legislation. Bimetallism proper implies, first, that the money unit shall be represented in two metals; second, that these metals shall enjoy equal and unlimited coinage privileges; third, that they shall be equalized by law in a fixed and definite ratio; and fourth, that the coins made from either of them shall be a full legal tender.
The term °limping bimetallism)) has been applied to systems wherein gold and silver were both recognized as standard money, but in which one of the metals was not coined at all, or not coined on equal terms with the other. The term °free coinage) has sometimes been used to mean unlimited coinage and sometimes to mean gratuitous coinage.. Unlimited coinage is necessary to a complete bimetallic system. When coinage is limited the volume of stand ard money is to that extent regulated by law ; when coinage is unlimited the volume depends, first, upon the total accumulation of coin, and, second, upon the annual production of the money metals. This sum is further augmented by the coinage of gold and silver plate when money becomes scarce, or lessened by an in creased demand for gold and silver in the arts when money becomes plentiful.
Bimetallism does not rest upon any natural particular ratio; the coinage ratio is arbitrarily fixed by law, and can be changed by law. The ratio states the proportion existing between the silver dollar and the gold dollar when measured by weight — that is, at the ratio of 16 to 1, the silver dollar weighs 16 times as much as the gold dollar. While the legal and commercial ratios between the metals have fluctuated from time to time the commercial ratio has, as a rule, followed the legal ratio, and from the begin ning of history down to 1873 the fluctuations in the commercial ratio were never as sudden or as great as they have been since 1873. During the 400 years which elapsed between 1473 and 1873 the extreme variation in the commercial ratio was from 14 to 1 to 16 to 1, although during that period there were greater changes in the relative production of the metals than have occurred since. For instance, between 1800 and 1840 the world's production of silver was about 4 to 1 in value, compared with the production of gold; after the new discoveries of gold in 1849 the production of that metal so increased that the annual output of gold was soon more than 3 to 1 in value, compared with the output of silver, and yet during this tre mendous change in relative production the com mercial ratio was comparatively stable, owing to the fact that all the gold and all the silver could go through the mints into the world's currency.
The ratio of 16 to 1 was advocated by American bimetallist, first, because it was the ratio existing between the silver and gold coins in circulation in the United States; and, second, because an increase in the ratio, made by in creasing the size of the silver dollar, would to the extent that it was joined in by other nations require the recoinage of silver coins into larger coins, and thus reduce the world's volume of standard money. If, for instance, the ratio
were changed to 32 to 1 by international agree ment, and the silver money of the world, ap proximating $4,000,000,000, were recoined into $2,000,000,000, it would cause a shrinkage of about 25 per cent in the total volume of metallic money and, as contracts would still call for the same number of dollars, such a change in the ratio would transfer billions of dollars in value from the wealth producers to the holders of fixed investments.
Bimetallism, therefore, relates to the legal status of the metals rather than to their com mercial value, and does not necessarily imply the simultaneous or concurrent circulation of both metals.
The Gresham law has often been quoted against bimetallism. That law is a statement, made by a master of the English mint- of that name, who announced as his observation that the worn, light-weight coins ran the full-weight coins out of the country the explanation be ing that while, to a majority of the people, one coin was as good as another so long as it would pass current, the jewelers would melt and the dealers in money would collect and export the heaviest coins (coins passing by weight rather than by legal tender value out side of their own country). It can readily be seen that the Gresham law can apply not only to the use of two metals when there is differ ence between government ratios, but also when the commodity values of the two metals differ. When, for instance, we had a ratio of 15 to I in this country, and the French ratio was 15% to 1, there was a tendency to send American gold to France and bring French silver to the United States, and yet this tendency did not cause the exportation of all American gold to France or of all French silver to the United States. France, being at that time the stronger nation commercially, fixed the ratio and our gold rose to a premium. In the payment of debts silver was the money employed, and gold, when it was used, was used at its commodity price, which was expressed as a After 1834 the situation was reversed and silver went to a premium. Gold was then used for the payment of debts and for general transac tions, and silver, when it was used, brought a premium. When the ratio was 15 to 1 in this country gold went to a premium of about 3 per cent, because the French ratio was 1554 to 1: when our ratio was changed to 16 to I silver rose to a premium of about 3 per cent.